Double-digit increases in gas and electricity prices and rising fuel and food costs are exacerbating the financial difficulties faced by homeowners with mortgages. High inflation has reduced the likelihood of base rate cuts, while the persistence of the credit crunch means that, even if the Bank of England were to cut rates, there are no guarantees that mortgage lenders would pass on those cuts to borrowers. There could not be a worse time to default on a loan: anyone with a less than perfect credit record will find it increasingly difficult - and expensive - to borrow money. So what should you do if you are struggling to meet your mortgage repayments?

1. Ask for help - now!

Speak to your lender immediately. Under the Financial Services Authority's treating customers fairly initiative it must attempt to work with borrowers who are suffering financial hardship. You could also speak to the Citizens Advice Bureau, which provides free advice.

2. Do not miss a payment

“If you miss a mortgage payment, this will be recorded on your credit file and may make it more difficult to get a mortgage, or to remortgage, in the future,” says Melanie Bien, of the mortgage broker Savills Private Finance. Your home could even be repossessed. Jonathan Cornell, of Hamptons International Mortgages, says: “Maintaining your mortgage payment should be your main priority.”

3. Stop spending

Luxuries should be sacrificed. Check that you are getting the cheapest phone, energy and broadband deals, and paying the lowest insurance premiums without compromising on cover.

4. Switch to an interest-only loan deal...

Switching from a repayment to an interest-only mortgage will reduce your monthly payments. “You must ensure that you switch back to a repayment deal as soon as you can afford to do so, otherwise the capital will not be repaid by the end of the mortgage term,” Bien says.

5...extend the term of your mortgage...

Standard mortgage loans run for 25 years, but you can arrange to pay off your loan over 30 years or more: this reduces the monthly repayments, although it will of course increase the total amount of interest that you pay. Once again, this may be a good short-term solution: you could always reduce the length of the loan again once you can afford to do so.

6... get another deal...

“If you are on a standard variable rate or another rate without penalties, you could ask your lender what other rates they have to offer,” Cornell says. Many lenders, including Halifax, Nationwide, Cheltenham&Gloucester, Woolwich and Yorkshire Building Society, have reduced their short-term fixed rates, while tracker rates have also been coming down over the past few weeks so you may find that you can now get a cheaper deal.

7...or a new lender

If your lender is unable to offer you a better rate, consider going elsewhere. The market is nowhere near as competitive as it was 12 months ago, but some lenders - particularly the larger ones - are now looking to attract new business, so there are some decent deals around, particularly if you own a considerable chunk of equity in your property and if you have a clean credit history.

8. The state could help

If you are on a low income, you may be eligible for help with housing costs or council tax payments. If you have children, further help is available, in the form of child benefit (payable to all parents with children under the age of 16, regardless of income), as well as the working family's tax credit, which is means-tested.

9. Take in a lodger

Renting out a room is a tax-efficient way to boost your income: under the terms of the rent-a-room scheme, you are entitled to earn up to £4,250 a year tax-free by renting out a furnished room in your own home.

10. Sell up and downsize

If all else fails, you could put your property on the market and either downsize to a smaller, cheaper property or rent for a while until house prices fall and you can once again afford to get back on the property ladder. If you do decide to sell, do not let on that you desperately need to get rid of the property: buyers will drive a much harder bargain if they are aware that you are a distressed seller.

Hamptons International Mortgages: 020-7220 1000, hamptons.co.uk/mortgages.aspx

Savills Private Finance: 0870 9007762, spf.co.uk

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